Vermont OKs the Creation of Virtual Corporations

Ah Vermont, that lovely New England state known for its maple syrup, Ben & Jerry’s ice cream…and now, limited liability corporations that only exist online.

On June 6th, Gov. Jim Douglas signed an inauspicious-sounding bill entitled “H.0888, Miscellaneous Tax Documents” that could revolutionize the way startup companies are formed and run. As New York Law School professor David Johnson explained to me, up until now, U.S. law required LLCs to have physical headquarters, in-person board meetings and other regulations that have little relevance in the digital age.

No longer. Under the new law, for example, a board meeting may be conducted “in person or through the use of [an] electronic or telecommunications medium.” A “‘virtual company’ will be, as a legal matter, a Vermont limited liability company,” said Johnson. And other states are required to recognize the corporation as a legitimate LLC. So while in the past many companies registered in Delaware to take advantage of that state’s business-friendly policies, with this law, Internet-driven startups may find Vermont even more ideal.

Johnson was instrumental to crafting the bill’s language; he, along with his NYLS students and a couple of professors at Vermont Law School, spent the last two years putting it together. He foresees virtual companies launched for countless reasons, such as the production of software or publications written by people across the country, even for corporations that exist only in Second Life.

As you may have guessed, this isn’t just an academic exercise for Johnson; he’s also developing software to manage virtual corporations through NYLS’ DoTank project. Since word of the Vermont bill’s passing got out, he said, “I’ve had two people beg me to be the first to get on the list” to start filing virtual incorporation papers. Indeed, it’s easy to see this becoming standard practice in coming years, with traditional office buildings being abandoned for dynamic companies that exist wherever its employees happen to crack open their computers.
Image credit: Vermont.gov